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Q4 2016 | Austin Office | Market Report

Boots On The Ground

Commentary by David Bremer

Our "Boots on the Ground" view point is the voice of our experts, who have broken down the market data and compared it to what they are seeing for themselves. This is their take on what the numbers actually mean for the Austin office market.

While Austin is still very much a landlord's market, it's not the same feeding frenzy it was six to twelve months ago. Base rental rates stayed largely flat, while building operating expenses continued to increase (primarily due to increasing property taxes). Our team has seen a number of large office building transactions over the last few years at historically high prices per square foot. As long as this activity continues, Austin will continue to see higher property tax valuations.

Our local experts have also seen a great number of new subleases flooding the market in the past few months, with a majority of these opportunities being on or near the 360 Corridor. These include some of the traditional "we don't need the space" or "we outgrew our space" scenarios, but we're also seeing a flight to areas that have less traffic or more walkability.

Subleases will continue to become more prevalent based on the new co-working phenomenon and a changing workforce that has millennials seeking "live, work, play" locations. In years past, short term subleases filled quickly with startups looking for furnished spaces and short lease terms. Now, with the influx of co-working options in Austin (short term, furnished, and also having the cool-factor), subleases face increased competition and are likely to sit on the market for a longer period.

*Rates inclusive of estimated operating expenses.

Future Forecast

Colliers believes that the current flattening of absorption and rates are likely to remain constant for the next twelve months barring either (i) unexpected leasing activity from large international firms (examples include: Apple, Google, Facebook, and Indeed) or (ii) a significant slowdown in the national technology segment trickling down to Austin. Either would likely take twelve to eighteen months to have a significant impact on leasing conditions.

Our local experts don't see a major price correction on the horizon for hot submarkets like the Domain, East Austin and the CBD. These markets suffer from lack of product, and new product will only be constructed if rates continue to justify the high construction costs for developers. There is a significant amount of new space under construction, however over half of that space is pre-leased. While we might see some softness in office rates for these areas for the next twelve to twenty four months, we don't expect it to be significant.

Suburban markets will likely provide better value in the coming year, and market-wide, landlords are likely to be a little bit more "tenant friendly" on second generation space as it relates to lease terms, construction dollars and concessions.

Austin Office Overview

Austin's office market is leveling out after a year of ups and downs. The net absorption was as low as negative 104,579 SF and as high as 111,087 SF. The average rent and vacancy has stayed about the same throughout 2016, but construction has slowed down. There is currently 2,190,618 SF of office space under construction and 1,108,431 SF of that is set to deliver in Q1 2017.

Two buildings totaling 214,409 SF delivered in the fourth quarter, and 201,679 SF of that was pre-leased. The largest building that delivered was the 189,000 SF, 100.0% pre-leased, Parmer 3.1, located in the Northeast submarket.

The citywide average rental rate decreased over the quarter by 2.1%, from $33.90 per SF to $33.18 per SF in the fourth quarter. Class A rental rates in Austin's CBD increased by 0.2% over the quarter to $51.02 per SF from $50.90 per SF in the third quarter. Overall suburban Class A rental rates decreased, from $35.18 per SF to $34.25 per SF over the quarter.

According to KDH (Kinghorn, Driver, Hough), Austin had the largest percentage increase of jobs in large Texas metros with a 4.2% increase, beating Dallas-Fort Worth by 1.1%. Austin added a total of 43,923 jobs in 2016, while Houston added 10,200, and San Antonio added 4,900. Austin was also named the second best performing large city in America, for 2016, by the Milken Institute. San Jose MSA was at the top of the list, while the Provo-Orem MSA was tied with Austin in the second spot. Austin was followed by San Francisco and then Dallas-Fort Worth.


Vacancy & Availability

Austin’s citywide vacancy rate decreased marginally between quarters from 11.8% to 11.1%. The CBD Class A vacancy rate also decreased over the past two quarters from 6.9% to 6.0% in Q4 2016. The suburban Class A vacancy rate followed the trend and dropped quarter-over-quarter from 13.6% to 12.7%.

Overall suburban vacancy decreased over the quarter to 12.3%. Submarkets that saw a decrease in vacancy over the quarter include Cedar Park, Central, East, North/Domain, Northeast, Round Rock and Southeast. The Southeast submarket saw the largest decrease in vacancy, falling from 32.6% to 16.1% over the quarter, which was due to Cenpatico moving into their 219,424 SF space at 5900 East Ben White Boulevard.

Absorption & Demand

Austin’s office market posted 401,539 SF of positive net absorption in Q4 2016, which makes the total net absorption for 2016 1,067,018 SF. The three submarkets that experienced the largest positive net absorption during 2016 include Southeast, Far Northwest and Round Rock. A majority of the positive net absorption in the fourth quarter happened in the Southeast submarket, totaling 221,602 SF of positive net absorption.

The second highest positive net absorption occurred in Class A space in the Northeast submarket, with 75,427 SF absorbed in the fourth quarter. This can be attributed to a 184,500 SF lease at Parmer 3.1.

The CBD submarket had the most tenants that moved into spaces 10,000 SF or larger. The total square feet of leases signed in Q4 2016 in the CBD was 180,282 SF. The submarket with the most square feet leased in Q4 2016 was North/Domain with 302,388 SF. One of the tenants that entered the North/Domain submarket was Facebook, who signed the lease for their 102,438 SF space at Domain 8, which is set to deliver in Q1 2017.

Quarterly Absorption, New Supply & Vacancy Rates


Annual Absorption, New Supply & Vacancy Rates


Rental Rates

According to CoStar, our data provider, Austin’s citywide average rental rate decreased slightly over the quarter from $33.90 per SF to $33.18 per SF. As expected, the highest rates across the Austin market in the fourth quarter were in CBD Class A buildings, where rental rates reached $51.02 per SF. Rental rates were also high in the West Central submarket and Central submarket where Class A rental rates reached $39.91 per SF and $40.51 per SF respectively.

Citywide Class B rental rates rose in Q4 2016 to $28.12 per SF from $27.70 per SF in Q3 2016. Class B rates in the CBD decreased by 4.8% over the quarter from $39.51 per SF to $41.39 per SF.

Citywide, Class B space saw 103,414 SF of positive net absorption in the fourth quarter. Positive net absorption in Class B space occurred in the East, Far Northwest, Round Rock, South and Southeast submarkets.

Leasing Activity

Austin’s office leasing activity recorded 1,006,984 SF in Q4 2016. Major transactions this quarter included a new lease for Oracle at 9500 Amberglen Boulevard and a renewal for Capital Factory.

Q4 2016 Top Office Leases

Parmer 3.1 Northeast 184,500 Home Depot Oct-16
11601 Alterra Pkwy. North/Domain 136,584 Amazon4 Oct-16
11601 Alterra Pkwy. North/Domain 102,438 Facebook4 Oct-16
9500 Amberglen Blvd. Far Northwest 60,561 Oracle Oct-16
701 Brazos St. CBD 56,702 Capital Factory1 Nov-16
12301 Research Blvd. Northwest 49,312 HomeAway3 Dec-16
13620 Ranch Road 620 S. Cedar Park 42,986 Unknown Dec-16
5707 Southwest Pkwy. Southwest 42,761 Unknown Nov-16
11601 Alterra Pkwy. North/Domain 34,146 Unknown Nov-16
500 W. 2nd St. CBD 31,051 Unknown Nov-16
10801 N. MoPac Expy. North/Domain 29,220 Unknown Nov-16
500 W. 2nd St. CBD 21,688 CBRE Nov-16
6500 River Place Blvd. Northwest 21,497 Unknown Nov-16
3711 S. MoPac Expy. Southwest 21,262 Unknown Nov-16
835 W. 6th St. CBD 21,218 Cirrus Logic Nov-16
3711 S. MoPac Expy. Southwest 20,190 MongoDB1,2 Nov-16
3711 S. MoPac Expy. Southwest 18,549 Unknown Nov-16
200 W. Cesar Chavez St. CBD 17,405 Unknown3 Oct-16
11055 N. IH-35 Northeast 14,770 Unknown1 Oct-16
6500 River Place Blvd. Northwest 12,401 Ambiq Micro Nov-16
1 Renewal
2 Expansion
3 Sublease
4 Pre-lease/proposed or under construction


Sales Activity 

Austin’s office investment sales activity included ten sales transactions (including two portfolio sales) with an average sale price of $302 per SF.

Q4 2016 SIGNIFICANT SALES TRANSACTIONS – (100,000 SF or Greater) 

823 Congress Ave. CBD 181,381 1970 Brickman Cielo Realty Partners $63,000,000.00 $347.34 Oct-16
11501 Alterra Pkwy.* North/Domain 221,973 2014 TIER REIT, Inc. Shorenstein Properties,
$49,453,642.00 $445.58 Dec-16
10801 N. MoPac Expy. North/Domain 196,380 2001 Unknown Piedmont Office Realty
Trust, Inc.
$49,250,000.00 $250.79 Dec-16
10800 Pecan Park Blvd. Far Northwest 136,444 2009 Mark IV Capital, Inc. Equus Capital Partners,
$35,500,000.00 $260.18 Nov-16
7800 Shoal Creek Blvd. Central 151,395 1974 Seamless Capital, LP Equity Commonwealth
Management, LLC
$29,200,000.00 $192.87 Oct-16
11800 Domain Blvd.* North/Domain 114,665 2014 TIER REIT, Inc. Shorenstein Properties,
$25,546,358.00 $445.58 Dec-16

Sources: CoStar and Real Capital Analytics

*Part of a portfolio

Office Development Pipeline

2,190,618 SF of office space was under construction during Q4 2016. Two buildings totaling 214,409 SF delivered in Q4 including Parmer 3.1, a 100.0% leased 189,000 SF building in the Northeast submarket. Two proposed buildings were given the green light to begin construction this quarter.

3114 S. Congress Ave.
32,000 100.0% Unknown Jan-17
500 W. 2nd St.
500,512 55.3% Trammell Crow Company Jan-17
Building 1
7601 Southwest Pkwy.
87,500 66.7% Lincoln Property Trust Feb-17
Building 2
7601 Southwest Pkwy.
87,500 100.0% Lincoln Property Trust Feb-17
305 Denali Pass
Cedar Park
12,500 100.0% Unknown Feb-17
Domain 8
11601 Alterra Pkwy.
291,058 82.1% Endeavor Real Estate Group Feb-17
Diamond Building
Aldrich St. & Simond Ave.
57,761 35.6% Catellus Development Corporation Mar-17
205 E. Riverside Dr.
39,600 100.0% Chioco Designs Mar-17
Galleria Oaks I
3297 Ranch Road 620 S.
74,532 51.4% Unknown May-17
Galleria Oaks II
3297 Ranch Road 620 S.
74,532 51.4% Unknown May-17
9811 Vikki
9811 Vikki Terrace
22,000 64.1% Unknown May-17
2301 E. Riverside Dr.
29,205 0.0% Unknown Jun-17
University of Texas Systems
702 Colorado St.
342,000 100.0% Unknown Jul-17
Shoal Creek Walk
835 W. 6th St.
218,180 63.4% Schlosser Development Jul-17
Overlook at Barton Creek
317 Grace Ln.
53,091 0.0% Unknown Jul-17
Building 2
5100 W. US Hwy. 290
27,199 43.7% Unknown Aug-17
Paloma Ridge Building C
13620 Ranch Road 620 S.
Cedar Park
112,500 0.0% Unknown Oct-17
801 Barton Springs Rd.
90,500 100.0% Generational Commercial Properties Dec-17
The Reserve at Oak Hill
6804 Old Bee Caves Rd.
38,448 0.0% Unknown Dec-17

Q4 Office Highlights


Click here to download the report as a PDF.

Austin Office Market Indicators

VACANCY RATE 11.8% 13.2% 
(Million Square Feet)
.429 .218 .401
(Million Square Feet)
.321 1.322 .103
(Million Square Feet)
.818 1.151

     CBD 7.5% 6.9% 
     SUBURBAN 14.5% 13.6% 
(Per Square Foot Per Year)
     AVERAGE $31.14 $33.90 $38.18
     CBD CLASS A $44.75 $50.90  $51.02 
     SUBURBAN CLASS A $33.12 $35.18  $34.25 

Job Growth & Unemployment (Not Seasonally Adjusted)

UNEMPLOYMENT 11/15 11/16
Austin 3.0% 3.2%
Texas 4.4% 4.2%
U.S. 4.8% 4.4%
Austin 2.0% 19.5K
Texas 1.8% 212.6K
U.S. 1.6% 2.3M